SoftBank to create $30 billion tech giant with Yahoo Japan, Line Corp merger

[November 18, 2019]  By Sam Nussey

TOKYO (Reuters) - Japan's SoftBank Corp plans to merge internet unit Yahoo Japan with messaging app operator Line Corp to create a $30 billion tech giant, as it strives better compete to with local rival Rakuten and U.S. tech powerhouses.

The deal, which would combine the providers of two of Japan's top QR code payment services, offers SoftBank access to 164 million Line users and their data in Japan and Southeast Asia as it expands into services outside its core wireless business.

It also offers Line a deep-pocket patron who can offer its tech expertise, including potentially via the giant Vision Fund.

The deal comes as SoftBank Group founder Masayoshi Son battles to restore his reputation after a disastrous investment in office-sharing firm WeWork.

Telecoms firm SoftBank Corp said in a statement that Yahoo Japan, which last month changed its name to Z Holdings Corp, would aim to complete its merger with Line, owned by South Korea's Naver Corp, in October 2020.

The companies plan to reach a definitive agreement by next month in a transaction that would see SoftBank Corp and Naver form a 50:50 venture that would control Z Holdings, which in turn would operate Yahoo Japan and Line.

SoftBank Corp and Naver, which owns 73% of money-losing Line, plan to launch a tender offer for Line's remaining shares at 5,200 yen each - a 13.4% premium to the shares' price before news of the merger broke. That values Line at about $12 billion.

Line's shares closed up 2.2% at 5,150 yen after the announcement. Shares in Z Holdings rose 1.2%, with Naver's shares up 2.9% and SoftBank Corp's down 0.3%.

Line has been looking for growth through expansion into areas such as QR code payments with Line Pay, but has been squeezed because of its limited funds and heavy-spending peers including SoftBank, which has a rival service called PayPay.

CLOSER TIES

The merger of Japan's most popular messaging app and one of the country's top online retailers is the latest consolidation in its tech industry, and comes as Rakuten is expanding into SoftBank's core business with the launch of mobile services.

SoftBank this month completed its acquisition of online fashion retailer Zozo Inc, whose founder and ex-Chief Executive Yusaku Maezawa sold down his stake following a series of missteps.

 The logo of SoftBank Group Corp is displayed at SoftBank World 2017 conference in Tokyo, Japan, July 20, 2017. REUTERS/Issei Kato/File Photo

The merger is driven by the two companies' "sense of crisis" over the rise of tech giants from the U.S. and China, Line CEO Takeshi Idezawa told a news conference, wearing a tie in Yahoo Japan's red corporate color.

SoftBank Group's Son frequently laments Japan's tardiness in emerging fields like artificial intelligence, with Monday's presentation showing even after combining the company's research and development budget would be dwarfed by overseas rivals.

Yahoo Japan CEO Kentaro Kawabe, who was wearing a tie in Line's corporate green, declined to comment on which services would be combined or abolished post-merger.

Line launched to overcome downed networks in the aftermath of a 2011 earthquake and tsunami before building a strong following with its use of colorful emojis, eventually listing in 2016.

However, the messaging service struggled to make inroads in countries dominated by apps like Facebook's Whatapp and eventually retrenched in its core markets of Japan, Taiwan, Thailand and Indonesia.

Coming at a time of heightened political tension between Japan and South Korea, the merger might be the two countries' most significant economic cooperation of the last decade, Jaewoong Lee, a South Korean serial entrepreneur and founder of Naver rival Daum wrote on his Facebook page late on Sunday.

Z Holdings will continue to be a consolidated subsidiary of SoftBank Corp, which is a unit of investment conglomerate SoftBank Group Corp.

SoftBank retained Mizuho Securities, a unit of Mizuho Financial Group, as its financial advisor. Naver retained Deutsche Bank.

(Reporting by Sam Nussey; Additional reporting by Ju-min Park in Seoul; Editing by Christopher Cushing and Mark Potter)

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